“It was agreed that the rates negotiated under the Cargill charter and the variation thereto were market rates. It was not suggested by the Charterers that the Cargill charter was in any way unusual or peculiar in its terms or length. Nor was it suggested that the Owners had allowed an unusually short gap between the date for redelivery under the Charterparty and the cancelling date under the Cargill charter.”
“A cargo ship is expensive to finance and expensive to run. The shipowner must keep it earning with the minimum of gaps between employments. Time is also important for the charterer, because arrangements have to be made for the shipment and receipt of the cargo, or for the performance of obligations under sub-contracts. These demands encourage the planning and performance of voyages to the tightest of margins. Yet even today ships do not run precisely to time. The most prudent schedule may be disrupted by regular hazards such as adverse weather or delays in port happening in an unexpected manner or degree, or by the intervention of wholly adventitious events… As the time for redelivery approaches things become more complicated…If the market is rising, the charterer wants to have the use of the vessel at the chartered rate for as long as possible. Conversely, the shipowner must think ahead to the next employment, and if as is common he has made a forward fixture he will be in difficulties if the vessel is retained by the charterer longer than had been foreseen. This conflict of interest becomes particularly acute when there is time left for only one more voyage before the expiry of the charter, and disputes may arise if the charterer orders the ship to perform a service which the shipowner believes will extend beyond the date fixed for redelivery.”
“6. A claim was made by the owners for damages for dislocation of business and other special damage, but there was no evidence before the umpire that such damages were within the contemplation of the parties at the time the said charterparty was entered into, and he therefore found that such damages were too remote.”
“Even though the time set out in a charterparty is not made of the essence so that the continued use of the vessel after the stated time will not at once have the result that such continued use will be in breach of contract it will be necessary that redelivery should be within a reasonable time. It might well be, therefore, that with a clause similar to clause 4 a charterer would be liable to pay hire at the contractual rate to the time of actual redelivery and in addition (if the current rate exceeded the contractual rate) to pay damages in respect of his failure to redeliver within a reasonable time.”
“In testing the position, I propose to take a case where the last voyage was not covered by cl. 7 at all. Assume that, at the time when the vessel was ordered on her last voyage, it was plain that she would be 30 days late after the 13 months had ended. Suppose that, at the time of this last order, the market rates had risen, and the charterer sought to take advantage of them so as to profit from those rates. That would be an illegitimate last voyage. The owners could have refused to take the vessel on it. If they did not refuse, but allowed the vessel to perform that illegitimate last voyage, it is plain the owners could recover either damages or a quantum meruit – see The Dione[1975] 1 Lloyd’s Rep 115 at p. 118. In either case the amount would be assessed at the market rate then ruling for a time charter trip for that voyage at that time. That is for a time charter for the period of time occupied by such a voyage based on spot rates for the voyage charter but adjusted to a time charter basis. That would obviously be fair and just. The charterer, by sending her on that illegitimate last voyage, would have received the high market rate then ruling and should pay damages based on that rate for that voyage, that is, for the remainder of it after the 13 months had expired.”
“In my judgment the arbitrators’ approach conflicts with the principle governing the calculation of damages which was enunciated in The Dione…this case is authority for the proposition that in circumstances where the owners undertook the illegitimate last voyage without waiving their rights to claim damages, the charterers’ obligation is to pay the charter rate until the last permissible date for redelivery, and thereafter pay the market rate until actual redelivery.”
“about minimum 10 months maximum 12 months time charter. Exact duration in charterers’ option. Charterers have further option to complete last voyage…”
“Until the decision in The Peonia, the generally held perception of the effect of the authorities was that there was no breach in redelivering after the end of the charter period if the last voyage orders were valid or “legitimate” (see the view to this effect expressed by Lord Denning MR in The Dione…at page 117).”
“(d) If the charterer sends the vessel on a legitimate last voyage – that is, a voyage which it is reasonably expected will be completed by the end of the charter period, the shipowner must obey the directions. If the vessel is afterwards delayed by matters for which neither party is responsible, the charter is presumed to continue in operation until the end of that voyage, even though it extends beyond the charter period. The hire is payable at the charter rate until redelivery, even though the market may have gone up or down: see [The London Explorer].”
“It is accordingly an order which the charterer is not entitled to give (just as an order to visit a prohibited port would be) and in giving it the charterer commits a breach of contract (perhaps a repudiatory breach but that we need not decide). The owner need not comply with such an order, because he has never agreed to do so. Alternatively, he may comply with the order although not bound to do so: if he does comply, he is entitled to payment of the hire at the charterparty rate until redelivery of the vessel and (provided he does not waive the charterer’s breach) to damages (being the difference between the charter rate and the market rate if the market rate is higher than the charter rate) for the period between the final terminal date and redelivery.”
“(On damages, see…The Peonia...)”
“In conclusion I must notice a feature of the award which troubled the arbitrator himself…This was what Lord Justice Hirst called the “windfall damages” attached to the repudiation, a large multiple of those which would have been awarded simply in respect of a few days’ late redelivery. At first sight, this apparently anomalous result is a good reason for questioning whether the claim for repudiation was soundly based. On closer examination, however, the anomaly consists, not so much in the size of the damages, but in the fact that damages were awarded at all. Imagine that the without prejudice agreement had not been made, and that the owners, having treated the charter as wrongly repudiated, had accepted a substitute fixture with Navios. If one then asked what loss had the repudiation caused the owners to suffer, the answer would be – None. On the contrary, the charterers’ wrongful act would have enabled the owners to make a profit. Even if they had not accepted the substitute employment they might very well have suffered no loss, since they would have been in the favourable position of having their ship free in the right place at the right time to take a spot fixture on a rising market. In neither case would the owners ordinarily recover any damages for the wrongful repudiation. Yet the arbitrator awarded a large sum. The reason was, I believe, that what the arbitrator did was not to award damages but to enforce the terms of the without prejudice agreement, and to remunerate the owners for performing a voyage from which, in consequence of the charterers’ wrongful act, they would otherwise have been free. This purely technical distinction would have been of no interest but for the stress laid on the size of the award of some U.S.$300,000 for the anticipatory repudiation of a contract which, if performance had gone ahead, would have led to a breach yielding a mere U.S.$35,000 in damages. For the reasons just stated, this comparison is inaccurate. The point really to be made is that if the conduct of the charterers was repudiatory the consequence that they were left without a ship to lift their sub-charterers’ cargo may seem out of proportion to the comparatively minor breach which their order, if performed, would have entailed. There is force in this, but not enough to overcome the contractual logic. The fact is that in a volatile market, of which merchant shipping is by no means the only example, a contract breaker may find the consequences of a breach are multiplied to a surprising degree by adventitious factors. Here, the charterers chose to stand their ground in circumstances where, if they were mistaken, the owners would have the upper hand. I believe that they were mistaken and must suffer the consequences, harsh as they may seem.”
“Turning to the authorities it must at the outset be recognized that, whether or not they are strictly binding upon us, they must, insofar as they represent the existing authoritative statements of the law only be departed from if they are clearly wrong. This principle has been stated on a number of occasions in the field of commercial law where it is recognized that the parties enter into contracts on the basis of the law as it has been stated in the applicable authorities. For a Court, in deciding a dispute under a commercial contract, later to depart from those authorities risks a failure to give effect to a contractual intention of those parties as evidenced by their contract entered into on a certain understanding of the law. As Lord Dunedin said in Atlantic Shipping & Trading Co. v. Louis Dreyfus & Co. (1922) 10 Ll.L.Rep. 703; [1922] 2 A.C. 250 at p. 257: My Lords, in these commercial cases it is of the highest importance that authorities should not be disturbed and if your Lordships find that a certain doctrine has been laid down in former cases and presumably acted upon you will not be disposed to alter that doctrine unless you think it clearly wrong. (See also Lord Wilberforce in The Aries, [1977] 1 Lloyd’s Rep. 334 at p. 338, cols 1 and 2; [1977] 1 W.L.R. 185 at pp. 190-191.)”
“in today’s market with its ease of communication and much higher emphasis of maintaining a vessel in almost continuous employment those “not unlikely results” are known, recognised and accepted hazards of late redelivery. They were not very unusual. To the contrary, they were the kind of results which the parties would have had in mind. Although the issue in this reference was not concerned with a particular market at a particular port, nevertheless the parties were actively engaged in the shipping market. It was not in dispute that the market rates for tonnage goes up and down, sometimes quite rapidly, and that such variations are market knowledge.”
“3. The situation which faced us in the present case must surely have occurred many times in the past, given the volatility of shipping markets from time to time. Without ever having had the point argued previously, I shared what I regarded at the outset in this arbitration as the well-established view in the industry, namely, that if a vessel is redelivered late, the measure of damages which the charterer must pay to the shipowner (if the market has risen in the meantime) is the difference between the market rate for the period of the overrun and the charter rate. That is the measure of damages which I would regard as being in the contemplation of those involved in the industry (whether they be operators, brokers or lawyers) as applying in such a situation – unless the charterer has been put on notice of the subsequent fixture. Knowledge of special circumstances will clearly enable the shipowner to rely on the ‘second limb’ of the rule in Hadley v. Baxendale.”
“damages based on the fact that a shipowner had concluded a particularly lucrative period fixture and has done so at a time when the market is at a peak (and shortly before it falls dramatically) would have to be regarded as a type of loss or damage “only likely to occur in a small minority of cases”
“55. In my judgment on the facts found by the majority arbitrators the Owners’ primary claim is not too remote. They have determined that, to the knowledge of the Charterers, it was recognised and accepted as a hazard of late redelivery that the vessel would miss her cancellation date for the next fixture; that this was not something that was very unusual but, on the contrary, the kind of result which the parties would have had in mind; that rapid variations in market rates in either direction were market knowledge; and that the kind of loss suffered by the Owners, namely the need, on account of delay in redelivery, to adjust the dates for the subsequent employment of the vessel with a reduction in the previously agreed rate of hire, was within the contemplation of the parties as a not unlikely result of the breach. 56. Insofar as it is necessary to do so, the Owners’ loss of profit can, in the light of the findings of the majority arbitrators, legitimately be treated as “arising naturally i.e. according to the usual course of things from such breach of contract itself”
“A charterer guilty only of a short late redelivery is not to be faced in law with uncapped loss of profit claims based on unknown contracts of unknown length made at unknown times…It should have been held in the light of the decided cases, the understanding of the shipping market, and the existence of a market measure, that the mere foreseeability of a possible loss of profit as ‘not unlikely’ on unknown contracts of unknown length and type would not be contemplated as being taken into account to displace the ordinary measure.”
“Secondly, that while it is not wholly clear what were the “special circumstances” on the non-communication of which the learned judge relied, it would seem that they were, or included the following:- (a) the “circumstance” that delay in delivering the boiler was going to lead “necessarily” to loss of profits. But the true criterion is surely not what was bound “necessarily” to result, but what was likely or liable to do so, and we think that it was amply conveyed to the defendants by what was communicated to them (plus what was patent without express communication) that delay in delivery was likely to lead to “loss of business”; (b) the “circumstance” that the plaintiff needed the boiler “to extend their business.”
“It may be well first to set out the knowledge and intention of the parties at the time of making the contract so far as relevant or argued to be relevant. The charterers intended to sell the sugar in the market at Basrah on arrival of the vessel. They could have changed their mind and exercised their option to have the sugar delivered at Jeddah but they did not do so. There is no finding that they had in mind any particular date as the likely date of arrival at Basrah or that they had any knowledge or expectation that in late November or December there would be a rising or a falling market. The shipowner was given no information about these matters by the charterers. He did not know what the charterers intended to do with the sugar. But he knew that there was a market in sugar at Basrah, and it appears to me that, if he had thought about the matter, he must have realised that at least it was not unlikely that the sugar would be sold in the market at market price on arrival. And he must be held to have known that in any ordinary market prices are apt to fluctuate from day to day: but he had no reason to suppose it more probable that during the relevant period such fluctuation would be downwards rather than upwards – it was an even chance that the fluctuation would be downwards.”
“If that was the right test then the decision was right, and I think that that test was in line with a number of cases decided before or about that time (1877). But, as I have already said, so strict a test has long been obsolete. And, if one substitutes for “reasonably certain” the words “not unlikely” or some similar words denoting a much smaller degree of probability, then the whole argument in the judgment collapses.”
“Now, as I have already said, the law has not stood still since Hadley v. Baxendale. First, the principle originally enunciated in that case has been restated, in particular in two cases…Victoria Laundry…and…The Heron II…The general result of the two cases is that the principle in Hadley v. Baxendale is now no longer stated in terms of two rules, but rather in terms of a single principle – though it is recognized that the application of the principle may depend on the degree of the relevant knowledge held by the defendant at the time of contract in a particular case. The approach accords very much to what actually happens in practice; the Courts have not been over-ready to pigeon-hole the cases under one or other of the so-called rules in Hadley v. Baxendale, but rather to decide each case on the basis of the relevant knowledge of the defendant… In some cases, the Courts have been prepared to take into account knowledge of special circumstances (i.e., circumstances outside the ordinary course of things) although such knowledge was not communicated by the plaintiff to the defendant – such as knowledge of the nature of the plaintiff’s business…In other cases, however, the Courts appear to have considered that the special circumstances should have been specifically drawn to the attention of the defendant by the plaintiff…In the light of the decided cases, the test appears to be: have the facts in question come to the defendant’s knowledge in such circumstances that a reasonable person in the shoes of the defendant would, if he had considered the matter at the time of making the contract, have contemplated that, in the event of a breach by him, such facts were to be taken into account when considering his responsibility for loss suffered by the plaintiff as a result of such breach. The answer to that question may vary from case to case, taking into consideration such matters as, for example, the nature of the facts in question and how far they are unusual, and the extent to which such facts are likely to make fulfilment of the contract by the due date more critical, or to render the plaintiff’s loss heavier in the event of non-fulfilment. The two governing principles – the principle of causation and the limiting principle of remoteness of damage – provide, in their developed form, the solution to most problems of damages. Furthermore, I can find in the cases no rule of policy either excluding, or imposing special criteria in respect of, the recovery of loss of profits, whether the relevant contract be a contract of sale or carriage, whether the breach be non-delivery or delayed delivery, and whether the profits claimed to have been lost are resale profits or profits from loss of use (which I shall call user profits).”
“If, at the date of the breach, there is an available market, the normal measure of damages will be the difference between the contract rate and the market rate for chartering in a substitute ship for the balance of the charter period. If however the time charterer decides not to take advantage of that market then, generally speaking, that will be his own business decision independent of the wrong; and the consequences of that decision are his. If he judges the market correctly, he reaps the benefit; if he judges it incorrectly, then the extra cost falls on him. It does not matter (and this is important in regard to the findings of the arbitrator in the present case) that his decision was a reasonable one, or was a sensible business decision, taken with a view to reducing the impact upon him of the legal wrong committed by the shipowners. The point is that his decision so to act is independent of the wrong.”
“It is perfectly true that the defendants knew that the plaintiffs were merchants who had bought for re-sale, but everybody who sells to a merchant knows that he has bought it for re-sale, and it does not, as I understand it, make any difference to the ordinary measure of damage where there is a market. What is contemplated is that the merchant buys for re-sale, but if the goods are not delivered to him he will go out into the market and buy similar goods and honour his contract in that way. If the market has fallen he has suffered no damage; if the market has risen the measure of damage is the difference in the market price. There are, of course, cases where that prima facie measure of damage is not applicable because something different is contemplated. If, for example, a man sells goods of special manufacture and it is known that they are to be re-sold, it must also be known that they cannot be bought in the market, being specially manufactured by the seller. In such a case the loss of profit becomes the appropriate measure of damage. Similarly, it may very well be that in the case of string contracts, if the seller knows that the merchant is not buying merely for re-sale generally, but upon a string contract where he will re-sell those specific goods and where he could only honour his contract by delivering those goods and no others, the measure of loss of profit on re-sale is the right measure.”
“If late delivery of goods under a sale contract is to be regarded as analogous to late redelivery under a charterparty, it has to be remembered that that which is to be redelivered will in all probability be the very thing that is thereafter to be delivered under a subsequent charter.”
“Well, I know that already! But don’t expect that your telling me that is enough to put me on notice for the purpose of claiming loss of fixture damages if I redeliver the vessel late and you turn out to lose your fixture!”